When exactly do marketplace facilitators need to collect Wisconsin sales tax?
Marketplace facilitators must collect tax on third-party sales in Wisconsin starting January 1, 2020, due to the enactment of Assembly Bill 251 (Act 10).
However, according to recently published answers to Marketplace Provider and Seller Common Questions,* “A marketplace provider with no physical presence in Wisconsin (i.e., remote seller) is required to collect and remit Wisconsin sales or use tax on taxable sales made on behalf of a third-party seller on and after October 1, 2018” — unless it qualifies for the state’s small-seller exception.
Apparently Act 10 merely “clarifies” a preexisting marketplace provider collection obligation. A review of the Wisconsin Department of Revenue’s policies on marketplace sales therefore seems in order.
Who’s liable for the tax on marketplace sales in Wisconsin?
In March 2014, the Wisconsin Department of Revenue announced that sellers using distribution facilities in Wisconsin are liable for Wisconsin sales tax. In other words, marketplace sellers must collect and remit sales tax — even if “the distribution or fulfillment facility lists the seller’s products on its website and/or collects payments on behalf of the seller.”
(The terms “marketplace seller” and “marketplace provider or facilitator” weren’t yet commonplace.)
Then in May 2016, the department announced, “Retailers engaged in business in Wisconsin are liable for Wisconsin sales or use tax," including on “sales made by a retailer on behalf of a third-party seller.” In other words, marketplace providers must collect and remit sales tax on all sales made through the marketplace (unless they qualify for the exception for certain online marketplace providers operating a distribution facility in Wisconsin).
However, marketplace sellers weren’t necessarily off the hook. The 2016 notice states, “The third-party seller may also be liable for the tax.”
If push came to shove, who would the department go after first, the marketplace provider or the marketplace seller? It didn’t say. It did say: “When more than one party is liable for the tax, the liability for the tax is extinguished for both parties when either party remits the tax to the department.”
Clear … as mud
Having two parties ostensibly liable for the same tax is confusing at best. Businesses had to ask themselves: Was it better to remain out of sight, out of mind and wait for the other guy to step forward to remit the tax? Or was it better to step forward, pay the tax, and potentially incur fines and penalties on other unpaid taxes?
And what if neither party collected the tax in the first place because it assumed (or hoped) the other one would do it?
Perhaps push never came to shove: When the above policies were created, states lacked the authority to require remote retailers to collect and remit tax. That was before the Supreme Court of the United States overruled the physical presence rule in its decision in South Dakota v. Wayfair, Inc. (June 21, 2018), thus allowing states to tax remote sales.
Following the lead of South Dakota, Wisconsin adopted its own economic nexus rule requiring remote retailers with a certain amount of economic activity in the state to collect and remit tax starting October 1, 2018. The initial rule made no mention of marketplaces aside from lodging marketplaces, noting that the department was in the process of updating guidance for them.
However, the department did eventually publish FAQs for remote sellers that do mention marketplaces. According to the FAQs (dated December 2018), a remote marketplace is required to register and collect Wisconsin sales or use tax on taxable sales made on behalf of third-party sellers unless it qualifies for the small-seller exception. Marketplaces should include their own sales and third-party sales when calculating their sales in the state (for the purpose of the small-seller exception).
The FAQs also state that third-party sellers don’t have to register to collect Wisconsin sales or use tax if all their sales are made through a marketplace that collects and remits on their behalf. However, they do need to register and collect tax if they make sales through other channels, including non-collecting marketplaces.
With all this confusion over who is and isn’t required to collect tax, there’s a good chance marketplace providers and sellers haven’t always collected Wisconsin sales tax as they should. Enter voluntary disclosure.
Voluntary disclosure agreements
A voluntary disclosure program or agreement, often called a VDA, is a binding agreement between a state and a taxpayer that in theory benefits both. For states, VDAs can mean more revenue with less effort. For taxpayers, they can limit the look-back period (the length of time the state can hold them liable for unpaid tax), reduce or waive penalties, and provide some audit protection.
To receive these benefits, taxpayers need to identify themselves to the state, take care of outstanding taxes, and agree to comply with state and local tax laws from that point forward. Whether it’s worth doing so is a question that often plagues businesses that have hitherto flown under the state’s radar; it’s also a question only the seller can answer.
VDAs are certainly worth considering, especially for non-collecting marketplace sellers that have had inventory stored in the state. According to the Wisconsin Department of Revenue, “Sellers who make sales through marketplaces may be required to collect Wisconsin sales/use tax and file Wisconsin franchise/income tax returns as a result of having inventory stored in a warehouse or fulfillment center located in Wisconsin.”
Information about how to apply for voluntary disclosure, either through the Wisconsin Department of Revenue or the Multistate Tax Commission (for businesses seeking a VDA with multiple states) is available at the department’s Voluntary Disclosure webpage.
Next steps for remote marketplace sellers and providers
Wisconsin is a member of the Streamlined Sales and Use Tax Agreement, or SST. Consequently, retailers wishing to register to collect Wisconsin sales tax may do so through the Wisconsin Department of Revenue or through the SST.
There are certain benefits to registering through the SST. To learn more about them, read What is Streamlined Sales Tax, and why should you care?
*This page is introduced as “a proposed guidance document” and is open for public comment.
The 2021 sales tax changes report: midyear update
Your guide to navigating the complicated world of tax compliance and preparing for the future
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